There was some interesting call buying activity we saw Monday in Ciena Corp. (NASDAQ: CIEN, Stock Forum), despite a lack of company-specific news. The stock is currently up more than 100% from its early March lows, but at least one option buyer thinks the stock's run could continue.
Looking at the June 12.50 calls in CIEN, we find that they traded nearly 25,000 times yesterday versus open interest of 378 for an average price of around 76 cents. In order for these calls to be profitable at expiration, the stock needs to be higher than $13.26, which is the strike price plus the option premium. Shares of CIEN closed at $10.90 and have not closed above $13 since September 4, the day the stock dropped more than 20% after the company announced disappointing earnings.
This call buying has pushed up implied volatility. The calls on Friday closed at 75 cents versus a stock price of $11.21. That was an implied volatility of roughly 70. Yesterday, with the stock at $10.83 and the options trading for 76 cents, that is an implied volatility of around 80. Intuitively as well, you can tell that implied volatility is higher. The calls are higher with the stock lower. Calls are not typically supposed to rise in value if the underlying shares fall.
In order for this call buyer to make money, the shares of the stock need to rise. One catalyst that the investor might think could cause the stock to rise would be the company’s quarterly earnings announcement. Ciena has not set a firm date for earnings yet, but based on recent history, it is likely that earnings will be announced sometime around June 4. Given that the shares of CIEN bottomed at $5.13 on March 3, this investor is betting on a continued bull run to make money on these calls.